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Rural outsourcing: A win-win solution for both India and the USA?

April 19, 2010

India’s outsourcing industry has long faced challenges associated with escalating costs due to high attrition rates and increasingly high salaries and real estate prices. On the other hand, USA based companies must not only grapple with cost issues but they also face challenges associated with quality and political repercussions when outsourcing work offshore. Hence and the potential solution for both India and the USA: Rural outsourcing.

As the Wall Street Journal recently noted, there are now more than 100 BPO centers likely operating in rural India and most of these operations are less than three years old handling work outsourced domestically. Meanwhile, the Economic Times noted last year that the average billing rate for domestic India clients was only US$$3-4 per hour for every employee compared with US$8-12 per hour for offshore clients – making domestic work unattractive and unprofitable if done from a major metro area. Hence, there are now a couple of prominent rural BPO operators or global outsourcers planning rural operations that were noted by both papers and these operators included:

HDFC Bank, which has set up a rural BPO center through its subsidiary Atlas Documentary Facilitators, has approximately 550 rural employees involved in non-core operations (i.e. data capturing and indexing of customer data) that were previously handled by more than 1,000 employees in Mumbai and Chennai. All told, the center handles 22,000 applications a day and has a rate of 100 application per person in one 8 hour shift.

The Tata Group, which is planning to hire 5,000 people for its rural BPO operations over the next couple of years, is planning to employ 200 people in two BPO centers with one call call center providing back office support for Tata Indicom customers in the state of Uttar Pradesh.

Infosys BPO, which is planning to tie up with service providers with operations in rural areas or small towns for its domestic operations, will use a revenue-sharing model that will see Infosys getting the clients and the rural operators performing the service.

Wipro BPO, which already provides technology and other support services to a few rural service providers, will enter the domestic market soon and may also explore service delivery tie-ups with rural operators.

However, it was also noted that these two examples are exceptions as rural BPO centers typically have only 25 to 50 seats and they are not servicing big clients or handling work from abroad. Moreover, it was noted that one such provider that was incubated by the Indian Institute of Technology Chennai’s Rural Technology Business Incubator did not work out as planned when professionalism, security and reliable infrastructure became insurmountable issues.

Meanwhile, both outsourcers and their clients in the USA have discovered the advantages of having a call center or a BPO in a rural location. Some of the advantages to setting up in rural America that were recently cited by The Roanoke Times and the FinancialWire included the following:

Lower cost of living

Lower operating costs (i.e. salaries, real estate etc.)

No cultural or communication barriers

Lower political and other risks

Lower attrition rates – often due to high rural unemployment

Relatively educated workforce (i.e. two year college degrees)

Better customer service and satisfaction

Closer proximity to clients

Availability of high quality infrastructure

Moreover, it was noted that call center or BPO type operations help to move rural areas away from being dependent on agriculture or on manufacturing industries that are in decline. However, it was still noted that there has yet to be a decline in offshore outsourcing since strictly from a cost perspective, offshore outsourcing is still to attractive of a proposition for many outsourcers or their clients to turn down. Nevertheless, rural outsourcing clearly offers a solution well worth considering for both India and the USA.

Comments

The issue with rural outsourcing is.. how do we know the internet situation in rural areas? Isn’t it likely they may have more internet outages as well as power outages?

Prem on
April 26th, 2010 1:30 am

Great information! I’ve been looking for something like this for a while now. This will give more oppurtunities for workers living in rural areas.
Thanks!

legal process outsourcing on
April 26th, 2010 5:23 am

Of course there will still be geographical limitations to rural outsourcing. Developmental cost may be too much to implement a progressive cause. There is just too much at stake to try rural investments now a days.

ut on
May 2nd, 2010 11:56 pm

Pretty nice post. I just stumbled upon your blog and wanted to say that I have really enjoyed browsing your blog posts. In any case I’ll be subscribing to your feed and I hope you write again soon!

It would be great to counter poverty.and or unemployment with profitability. Yet, i do wonder about the risk factors. While it would be advantageous to keep the jobs on our shores, I am cautious to when outsourcing in the Philippine’s, to do so in
major metropolis because of the limits placed on rural areas